Foreign investors have pulled out more money this year than they brought in between 2009-2021

• Indian stock markets have witnessed a selloff the kind of which we have not seen before.
• In the first five months of 2022, foreign investors have pulled out more money than they brought in between 2009 and 2021.
• In the last eight months alone, foreign investors have pulled out over ₹3 lakh crore from the Indian markets.

Foreign institutional investors or FIIs have pulled out more money from the Indian markets in the first five months of 2022 than they brought in 12 years between 2009 to 2021 — giving us a glimpse into how severe the selloff is.

The selloff in 2022 has been so bad that the 2021 selloff – which witnessed foreign investors pulling out over ₹91,000 crore – pales in comparison.

India was facing the deadly second wave of the Covid-19 pandemic 2021. It was believed that 2022 could be the year of recovery with full economic activity – yet, FIIs seem to see it differently. As of now, FIIs have pulled out over ₹2,15,000 crore in 2022 so far.

A matter of ‘interest’

One of the reasons behind the selloff could be the surging interest rates all across the globe. This could be the driving force behind FIIs pulling out money from risky markets like India and investing in the US, which has seen a rise in interest rates after printing trillions of dollars via quantitative easing during the pandemic years.

Even though the Indian stock markets have witnessed high volatility over the last few weeks, the year-to-date performance is still not as bad as it looks.

Nifty 50, the benchmark index, is down 8% in 2022 so far. On the other hand, Nasdaq is down over 28% while S&P 500 is down nearly 19%.

Why are foreign investors selling off?

Multiple issues seem to have spooked foreign investors.

“Headwinds in terms of higher crude prices, rising inflation, tightening monetary policy etc. weigh on indices. Besides these, investors are worried about growth expectations while inflation remains elevated globally. Hence, we believe FPIs flows are likely to remain volatile in the near-term,” said Shrikant Chouhan, head of equity research (retail), Kotak Securities.

It’s not just the rising inflation and in reaction, the repo rate hikes by RBI that has FIIs worried. A strong dollar is also egging on FIIs to pull out of India, and any respite doesn’t seem to be in sight for now.

“Rupee depreciation is adding to the concerns of FPIs. Dollar appreciation is broadly negative for emerging market equity. And this will continue to be a factor triggering FPI outflows from India,” said VK Vijayakumar, chief investment strategist, Geojit Financial Services.

Other experts, though, believe that with RBI finally pulling its act together and starting to hike interest rates, there could be some relief for both FIIs and domestic equity investors.

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